On appeal by the charterer, the High Court of the United Kingdom (the High Court) in Priminds Shipping (HK) Co. Ltd. vs Noble Chartering Incorporated  EWHC 127 (Comm), overturned the award of a London tribunal ordering the charterer to indemnify the disponent owner for the payment it had made to the owner of the vessel in settlement of the latter’s claim for a 50% contribution to the sum paid to cargo receivers for damage to cargo. The cargo had been loaded heat damaged and the shippers’ statement on the bill of lading (as agents for the charterer) that the cargo was “clean on board” and “in apparent good order and condition” did not constitute a warranty in respect of the condition of the cargo nor did it preclude the master from taking reasonable steps to verify the condition of the cargo.
The Noble Chartering Incorporated, the defendant was the time charterer of the Motor Vessel Tai Prize (“Vessel”) from her owner (“Shipowner”). By a recap voyage charterparty dated 29 June 2012, the defendant as disponent owner agreed to let the Vessel to Priminds Shipping (HK) Co. Ltd. (the claimant) for the carriage of a cargo of heavy grains, soya and sorghum in bulk from Brazil to the People’s Republic of China (“Charterparty”). Pursuant to the Charterparty, the Vessel arrived at Santos and between 24 and 29 July 2012, 63,366.150 metric tonnes of Brazilian soya beans (“Cargo”) were loaded onto the Vessel.
A Bill of Lading (“B/L”) in the 1994 Edition of the Congenbill form was drafted by the shipper and offered for signature by or on behalf of the Master of the Vessel (“Master”) on 29 July 2012. It identified the shipper as being Sucocitrico Cutrale LTDA (“Shipper”), the Port of Loading as Santos and the Port of Discharge as “Main Port(s) of South China”. The B/L was executed by agents on behalf of the Master without any reservations. It incorporated the Hague Rules by operation of clause 2 on its reverse side. The contract of affreightment contained in or evidenced by the B/L was with the Shipowner not the claimant.
The Vessel arrived of the port of discharge (Guangzhou) on 9 September 2012 for discharge to the receivers of the goods, Guangzhou Green Oil Industrial Co Ltd (“Receiver”). Discharge commenced on 15 September 2012. On 17 September, discharge from two of the Vessel’s holds (Holds No.3 and 5) was suspended “Due to charred Cargo Found”. The remaining cargo was discharged without complaint and the cargo in Holds Nos 3 and 5 was discharged but the Receiver maintained that the Cargo in those holds had suffered heat and mould damage.
On 19 September, the Shipowner’s P&I Club provided an Undertaking to the Receiver as security to prevent the arrest of the Vessel. It provided that the dispute under the contract of affreightment contained in or evidenced by the B/L between the Shipowner and the Receivers was subject to Chinese law and the exclusive jurisdiction of the Chinese Courts. Proceedings were commenced by the Receiver against the Shipowner. The Shipowner contested the claim but lost both at first instance and on appeal and was ordered to pay the Receiver a sum equivalent to US$1,086,564.70
On 15 June 2016, the Shipowner commenced an arbitration in London against the defendant under clause 38 of the time charter between the Shipowner and the defendant for a contribution of 50% to the sum it had to pay to the Receiver (US$543,282.35). By a settlement agreement between the Shipowner and the defendant, the defendant agreed to pay US$500,000 to the Shipowner in full and final settlement of the Shipowner’s claim. In a subsequent arbitration the defendant claimed from the claimant the right to be indemnified for the amount they paid to the Shipowner and the costs of defending that claim. There was no express provision under which the defendant was entitled to the indemnity it sought. In the subsequent arbitration the arbitrator held that the shippers, as agents for the claimant, had warranted the accuracy of the statements as to the condition of the cargo contained in the B/L and/or had impliedly agreed to indemnify the defendant against the consequences of the inaccuracy of such statements. According to the arbitrator, the cargo was loaded on board with pre-existing heat damage, which later led to the development of mould. The damage was not reasonably visible to the Master or any other agent for the claimant during loading and the claimants would have been able to discover the damage by reasonable means, therefore the cargo, contrary to what was represented by the claimants, was not in apparent good order and condition when loaded and the claimants were liable to the defendants.
The arbitral award was appealed against on the following three issues:
i) Did the words “Clean on Board” and the words “…. SHIPPED at the Port of Loading in apparent good order and condition…” in the draft B/L presented to the agents for signature on behalf of the Master amount to a representation or warranty by the shippers and/or the claimant as to the apparent condition of the cargo observable prior to loading or were they an invitation to the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the Cargo;
ii) In light of the answer to (i), whether on the findings of fact made by the Arbitrator any statement in the B/L was inaccurate as a matter of law; and
iii) If so, are the claimants obliged to indemnify the defendants against any consequences of that statement being inaccurate whether pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term.
On the 1st issue the High Court held that, “[w]hen the charterer or shipper on his behalf tenders a bill of lading for signature by the Master that contains a statement as to apparent condition in the same or similar terms to the wording in the B/L, the charterer or shipper is inviting the shipowner by its agent the Master to make a representation of fact as to the apparent condition of the goods on shipment. It is not a warranty as to the accuracy of the represented facts, nor is the statement in the bill (once it is signed by the Master) a representation as to the actual condition of the goods shipped.” The High Court went on to hold that, “[t]he obligation to record the apparent order and condition of the goods is owed by the shipowner to the shipper” and further, “[t]he purpose of the representation is to record the carrier’s evidence as to the apparent condition of the goods when placed (shipped) aboard the ship. It can be relied on by the consignee and all subsequent holders of the bill of lading as reflecting the reasonable judgment of a reasonably competent and observant master.”
Quite critically, the High Court found that “the HR draws a clear distinction between the position in relation to information that appears in the B/L that is provided by the charterer or shipper on the charterer’s behalf, which the carrier or master on its behalf is obliged to accept at face value and representations as to the apparent condition of cargo at shipment.” (See the critical distinction between article III (3) (a) and (b) of the Hague Rules as juxtaposed against article III (c) of the Hague Rules) It is clear that under article III (3) (c), “… the apparent order and condition of the goods” is not something that is to be “… furnished in writing by the shipper”. Indeed order III rule (5) of the Hague Rules clarifies as follows, “[t]he shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall indemnify the carrier against all loss, damages and expenses arising or resulting from the inaccuracies in such particulars; the right of the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage to any person other than the shipper”, meaning according to the High Court that, “a warranty is deemed to have been supplied by the shipper to the carrier in respect of the information “… furnished in writing by the shipper” pursuant to HR, Art. III, Rule 3 but there is no such guarantee deemed to be given in respect of the apparent order and condition of the goods”.
On the 2nd issue the court found that because the arbitrator had found that the damage to the cargo pre-existed its shipment on board but was not reasonably visible to the Master or any agent of the defendant, then, as a result, the representation of fact by the Master as to the apparent condition of the cargo was not inaccurate because the Master did not and could not reasonably have discovered the relevant defects.
On the 3rd issue the High Court found that as a matter of principle, terms are to be implied only if to do so would be necessary in order to give the contract business efficacy or the terms to be implied are so obvious that they go without saying. Judge Pelling QC noted that the Hague Rules impose an express indemnity obligation on the charterer in respect of the information that he “furnishes in writing”. A charterer has no such obligation however in relation to statements regarding the “apparent order and condition” of the cargo. The Judge considered that this distinction was deliberate and therefore in the latter case “there is no room for the implication of an implied guarantee or warranty”.
The judgment highlights the importance of the Master ascertaining by his own independent means the, the condition of cargo laded on board his/her ship. This is more so if the Charter-Parties has incorporated the Hague Rules as was the case in this judgment. In the words of Mustill LJ in The Nogar Marin  1 Lloyds Rep 412:
“Everyone in the shipping trade knows that the master need not sign a clean bill just because one is tendered; everyone knows that it is the master’s task to verify the condition of the goods before he signs.”
The Hague Rules are incorporated into Kenyan law by virtue of Section 2 of the Carriage of Goods by Sea Act, Cap 392. Further because Kenya is a party to the Hague Rules, the same are automatically a part of Kenyan law by virtue of 2 (6) of the Constitution of Kenya. As such, the decision of the High Court of the United Kingdom on this point is important to the development of Kenyan law on the subject. The decision is available on http://www.okadvocates.com/blog/wp-content/uploads/2020/05/Priminds-Shipping-HK-Co-Ltd-v-Noble-Chartering-Inc-Tai-Prize.pdf